Take-Two Interactive Software Executing on Strategy
Sometimes bigger doesn’t necessarily mean better, which is the case in the ultra-competitive gaming sector. In the mid-cap space, investors who bought Take-Two Interactive Software, Inc. (NASDAQ:TTWO) have seen great returns.
TTWO stock has accelerated 41.3% over the past 52 weeks, which delivers alpha and easily beats the S&P 500, as well as beats the 7.73% and 11.12% comparative returns by much bigger rivals Electronic Arts Inc. (NYSE:EA) and Activision Blizzard, Inc. (NASDAQ:ATVI).
Chart courtesy of StockCharts.com
Now the gaming sector is all about developers having an iconic cornerstone game that caters to the masses around the world.
In the case of Take-Two Interactive Software, the company has historically hinged its success on its highly acclaimed Grand Theft Auto (GTA) franchise. The first installment was launched in 1997 on “PlayStation 1” and Microsoft Corporation (NASDAQ:MSFT) “MS-DOS” (remember these floppy discs?). The game is now in its fifth installment and has sold hundreds of millions of copies, making it one of the most successful video games in history.
Yet, the recent success of TTWO stock was not only due to Grand Theft Auto, but driven by the company’s ongoing success in diversifying its pipeline away from a single game.
At the core of Take-Two Interactive Software’s success has been the rocketing sales of its NBA 2K franchise, which is now the top-selling sports game. In the franchise’s 18th season, NBA 2K17 has attracted millions of gamers and is now consistently a top seller, which is great news for TTWO stock.
Not to rest on its laurels, Take-Two Interactive Software is actively busy launching more titles to ramp up its game pipeline. The company markets the WWE video game franchise and just announced it would launch a highly anticipated sequel to the Old-West-themed game Red Dead in the fall of 2017.
My Bull Case for TTWO Stock
The strategy for expanding the video game title pipeline makes sense, given the lag that has occurred for TTWO stock in between launches of Grand Theft Auto. There is no indication that the game’s sixth installment will be launched in fiscal 2018 (ending March), which could push out the launch to fiscal 2019. In the meantime, Take-Two Interactive Software offers an online version that introduces fresh changes.
The results have been impressive for Take-Two Interactive Software stock. The company’s FYQ2 saw TTWO stock beat the estimates on revenues and earnings per share (EPS). Take-Two Interactive Software beat the expectations by a whopping $0.15 per diluted share, on revenue growth of 21% year-over-year.
Take-Two Interactive Software also provided revenue guidance of $1.75 billion to $1.85 billion for FY17, which easily surpasses the consensus of $1.64 billion. As far as the valuation, Take-Two Interactive Software stock trades at roughly 19.25 times its FY18 EPS, which is in line with Activision and Electronic Arts.
The gains in TTWO stock have largely been made, but investors can look ahead knowing that the company is on the right path while getting ready for Grand Theft Auto VI.